Contagion fears in Balkans as Turkish lira plummets

Governments in the Balkans are fearful of contagion from the currency crisis in Turkey.

While a slump of over 40 percent in the lira this year may lead to a flood in Turkish exports to the region, the turmoil may slam the brakes on critical investments, Balkans Insight reported on Thursday citing economists.

Turkish President Recep Tayyip Erdogan’s government has focused on investment in the Balkans, providing infrastructure and other services to these poorer nations. He has sought to increase Turkey’s geo-strategic importance in the region, largely lost after the fall of the Ottoman Empire.

The lira slumped 4.1 percent to 6.74 per dollar on Thursday, taking losses for the week to more than 10 percent. A weaker lira makes foreign currency loans held by Turkish construction companies and other businesses more expensive to repay and threatens, at the very least, to hold up projects and expansion both in Turkey and abroad. A swathe of bankruptcies could be the end result.

With European Union enlargement delayed by Brexit plus the consequences of the debt and migration crises in Europe, the Balkans has become a competitive playground of power between the EU and Turkey. Russia and China are also seeking more of a foothold,

According to the Serbian Chamber of Commerce, 20 Turkish plants either opened in the past year or are being built in the country, Reuters said in May.

Trade volumes between Turkey and the western Balkans have risen to $3 billion in 2016 from about $430 million in 2002, with Serbia accounting for nearly one third.

Turkey is also the third largest investor in Kosovo, with $340 million invested, most of it to buy an airport and power company, Reuters reported.

Erdogan, who has fraught relations with Europe, even held an election rally in Sarajevo in the run up to June 24 presidential polls after Germany and Austria turned him down.

Turkish aid agencies are also very active in the region, rebuilding old Ottoman mosques and bridges and providing education and other public services. They have spent about 300 million euros in Bosnia alone.

Senior EU officials met their counterparts from six Balkan states earlier this year in Sofia, Bulgaria, the first such meeting for 15 years. Brussels made it clear that none of them could expect a fast-track to membership of the bloc.

While many analysts fear that the crisis in Turkey will cause damage to European banks invested in the mainly-Muslim country, it may be the Balkans that suffers most.